Stock Market Volatility: GDP Transmission Mechanism And Micro-level Response

China’s economy has maintained a high-speed growth in the pastdecade, and it has jumped to become the second largest economy after theUnited States. Between2003and2011, the average GDP growth reached10.7%. In2012, under the influence of domestic and foreign economicdownward pressure, GDP still maintain a7.7%growth. On micro level,however, many enterprises faced losses or even collapse. Excess capacity,inflation and scant demand left enterprises into an embarrassing situation.Throughout the contrast of the macro to micro economy, China’s stockmarket has been in bear market for six years, falling all the way from thehighest point in2007. The stock index has never recovered, anddiscouraged the investors. The stock market of United States, also sufferedfrom the financial crisis, is stabilizing and increasing to a record high.Confronted with this economic situation, we want to answer thefollowing questions, including whether macroeconomic growth canconduct to micro enterprise indicators, whether the stock market canreflect the performance of micro enterprises, and what is the relationshipbetween economic growth and stock market development. In order to linkthe three subjects, we set up conduction mechanisms among macro-economic, micro enterprises and stock market. Based on the previousresearch between economic growth and stock market fluctuation, we addthe enterprise microscopic variables to form a complete framework ofempirical research.This paper analyses the correlation between GDP and the stock index,finding that there is a significantly positive correlation relationship between GDP and the stock market. Although sometimes there isdivergence, they are both positively to change trend. Meanwhile, we alsomake a correlation analysis between GDP and enterprise microscopicindicators, and find that there exists a transmission path between them. Inorder to further study the correlation and change rules between stockreturns and micro indicators, we respectively conduct regression analysisbetween stock yield and microscopic indicators on macro and micro levels.We find that the depreciation of fixed assets and inefficient investment hasa negative effect on stock returns, operating profit and stock returns arepositively correlated, employee compensation has a positive effect onstock returns, the correlation between business tax and stock returns isundefined.On the basis of the predecessors’ researches, we further improve thetransmission path and theoretic framework of the macroeconomic, microenterprise and the stock market. Through the correlation research, we canprovide policymakers with microcosmic basis of decision-making, andprovides investors with analysis and prediction methods.